This copy is for your personal non-commercial use only. To order presentation-ready copies of Toronto Star content for distribution to colleagues, clients or customers, or inquire about permissions/licensing, please go to: www.TorontoStarReprints.com

Everybody wants something for nothing. So why then, when many large companies give away money to match employee RRSP contributions, do so many ignore the free lunch?

Insurer Sun Life Financial concludes from an analysis of 5,000 plans it administers that the two biggest reasons are people find it too confusing to do the paperwork to join, or they’re have trouble making ends meet and need the money now. As a result, Sun Life estimates that employees are turning their back on as much as $3 billion a year.

While we often point the finger at young people as having limited interest and understanding of their personal financial affairs, Sun Life finds that’s not so. They know a good deal when they see one and like all smart consumers they’re snapping it up.

Only 40 per cent of those in their 40s and 50s are taking full advantage of matching Registered Retirement Savings Plan or pension money in plans Sun Life administers. On the other hand, 90 per cent of those in their 20s, presumably new employees, are opting in.

Kim Duxbury, an assistant vice-president in Sun Life’s Group Retirement Services, says the older group isn’t participating at a higher rate because it is paying off mortgages, sending children to university and managing other day-to-day commitments

Article Continued Below

“Life gets in the way,” Duxbury said.

But what they’re leaving on the table is significant. Employers typically match contributions at between 50 cents on the dollar up to dollar for dollar. The average matching range is between 3 per cent and 6 per cent of the employee’s salary.

So, in the best case, somebody making $50,000 a year and putting $3,000 a year into an RRSP (6 per cent of salary), could be getting another $3,000 on the house.

If that’s going to be the main pillar of your retirement why wouldn’t you opt in?

In a 2014 report Sun Life added these other behavioral reasons why people opt out of voluntary plans:

Some find it hard to decide now about something that will affect them many years in the future;

Some don’t feel they have the expertise to judge whether it’s a good thing and do nothing by default;

Some procrastinate, deferring the decision to another day which never arrives.

Have your say

That’s not the case with other employee benefits, says Marilee Mark, a group benefits vice-president at Sun Life.

Mark says drug plans, dental care, vision care and physiotherapy — the four most popular benefits — are often used to their maximum. These are benefits that people could cover out-of-pocket. On the other hand, benefits like disability and critical illness insurance, and pension contributions, things not easily paid for if needed, are less popular.

In one situation the reward is immediate and it doesn’t cost to participate. In the others, it’s delayed and you have to pay something.

“We don’t like to think about retirement and we like to imagine we’re going to be as healthy in our 60s and 70s as we are now,” Mark says.

If employees are automatically enrolled in plans, but are give an opt-out window — a psychological out — they tend to stick around. Harvard economist David Laibson said in the U.S. where employees have tried this, participation rates rise. An auto-enrolled supplementary pension plan called NEST launched in 2012 in the U.K. has found the same pattern.

Sunlife’s Duxbury says auto-enrolment set as a percentage of earnings would help younger employees contribute more over time. If they set their contribution as a percent of salary, it would rise painlessly with pay increases.

If you’re not already taking advantage of retirement matching funds here are some things to consider:

Not much in life is free. If your company is willing to match give you 50 cents or more for every dollar you put into an RRSP, take their money and run.

A little goes a long way. It doesn’t matter if you can’t do it all. You have to start somewhere. The compounding power of money is Einstein’s eighth wonder of the world. Over time a little adds up.

Payroll deduction makes it easy: What you don’t see, you don’t miss.

You can’t match the return: When you buy into a company plan you are get the power of their professional management, investment expertise and lower fees. It’s hard for you to match. That adds up to higher returns and less stress.

So don’t wait to be asked. It’s yours for the taking.

Adam Mayers writes about investing and personal finance on Tuesdays and Thursdays. Reach him at amayers@thestar.ca

More from the Toronto Star & Partners

LOADING

Copyright owned or licensed by Toronto Star Newspapers Limited. All rights reserved. Republication or distribution of this content is expressly prohibited without the prior written consent of Toronto Star Newspapers Limited and/or its licensors. To order copies of Toronto Star articles, please go to: www.TorontoStarReprints.com